In the case entitled “Bell v Disner, et al”, we have the Judge’s Order on a Motion to set up a process for determining Final Judgments against Zeek “Net Winners”. Here are a few highlights, there are 25 sections within the Order:
The amount of net winnings shall be calculated in the same manner as the Final Judgments entered against the named Net Winners in this action. “Specifically, Net Winnings shall be calculated as total cash paid-out by RVG less outside cash (excluding reinvested funds generated as part of the ZeekRewards Program) used to purchase VIP bids, retail bids, and subscriptions (VIP bids + Retail bids + Subscriptions)”
On or before January 31, 2017, the Receiver shall notify each Net Winner Class member of the amount of their ZeekRewards Net Winnings as reflected in the available books and records of the RVG Receivership.
The Receiver shall notify each member of the Net Winner Class of the amount of their Net Winnings by email to the email address provided by the net winner in connection with any account included in determining the amount of Net Winnings as well as any other email address that has been provided by the net winner following the appointment of the Receiver. The Receiver shall also post a link on the Receivership website that allows class members to receive notification of the amount of their Net Winnings. In the event that the notice cannot be delivered to any email address provided by the Net Winner, the Receiver shall send a letter to the last known physical address of the Net Winner informing the Net Winner of the proceedings and the availability of the amount of his or her Net Winnings on the Receivership website.
Class Counsel for the Net Winner Class shall (i) post a notice on the Net Winner Class website describing the process set forth herein and (ii) communicate to the Net Winner Class the availability from the Receiver of the Net Winnings amount for each class member.
On or before March 31, 2017 (or at least 60 days following the initial email transmittal of the Net Winning amounts to class members if the Receiver’s email notice occurs after January 31, 2017), each class member shall, if they choose to do so, respond to the calculation of their Net Winnings from the RVG records.
Final Judgment shall be entered against any Net Winner Class member who does not respond to the Receiver’s calculation of their Net Winnings on or before the response deadline in the amount of their Net Winnings as calculated by the Receiver plus prejudgment interest, calculated at the North Carolina statutory rate of 8% per annum from August 17, 2012, which is on or after the date of the last fraudulent transfer payment to each Defendant, to November 29, 2016, the date of the Summary Judgment Order in this action.
In case 14-cv-91, Bell v Disner ,et al, the “Defendant Class of Net Winners” by and through their Texas attorney, James Kevin Edmundson, have filed a “Defendants’ Answer to Complaint and Affirmative Defenses” in reply to the original complaint filed back on February 28, 2014.
The very first 2 sentences are this:
1. The statement that RVG operated as a Ponzi scheme is a legal conclusion to which no response is required. Defendants lack knowledge or information sufficient to form a belief as to the truth of the remaining allegations of paragraph 1.
2. Defendants deny the allegations of paragraph 2 because, among other reasons, they have no information leading them to believe that RVG was a “scheme” or that they or others were somehow “net winners” as opposed to individuals who worked diligently for the income they earned in connection with Zeek.
I suppose even though a legal decision has been made as to whether Zeek was a Ponzi or a “scheme”, following the conviction on all counts of Paul Burks in the criminal trial, one would surmise that these positions by the Net Winners would be somewhat untenable. But, it gets even better with their Affirmative Defenses: (Pay particular attention to “C”, emphasis added)
A. Defendants devoted significant time and money working on behalf of RVG, which was performed pursuant to a contract between Defendants and RVG by which RVG agreed to pay Defendants for the work that they performed. Defendants performed as agreed and were owed the compensation that RVG promised to pay.
B. If RVG was a Ponzi scheme, Defendants had no knowledge of that fact. If RVG was a Ponzi scheme, then all of the other affiliates who participated in RVG have unclean hands as a result of their participation in a fraudulent scheme. C. On information and belief, the SEC knew or should have known of the RVG Ponzi scheme, but delayed unreasonably in its prosecution of claims against RVG. Alternatively, the SEC knew for some time that RVG was operating as a Ponzi scheme but intentionally delayed disclosing that information to Affiliates and to the public. That unreasonable delay has prejudiced Defendants because t h e y h a v e paid taxes on the money they earned working on behalf of RVG and have incurred business expenses as a part of their work on behalf of RVG. The Receiver in this action stands in the SEC’s shoes and also delayed to Defendants’ detriment and now seeks return of all monies Defendants earned in connection with RVG, with no credit for the taxes or business expenses that Defendants legitimately paid, but that could have been avoided had the SEC or the Receiver timely advised Defendants of RVG’s true nature or acted in a more expeditious manner.
D. The Receiver’s claims in this case against Defendants are barred by the equitable doctrine of laches.
E. Defendants accepted compensation in connection with RVG in good faith, in exchange for reasonably equivalent value and in accordance with the terms of the contract between Defendants and RVG.
F. Defendants are entitled to a setoff for the amounts they paid to RVG for the purchase of bids and to otherwise participate in the Affiliate program, the amount of any and all expenses they incurred in operating their business for the benefit of RVG, for the amount of all taxes they paid and for the value of the funds the Receiver wrongfully misappropriated from Defendants’ e-wallet accounts. Defendants are also entitled to a setoff to the extent of any judgment on their counterclaims.
G. The Receiver has filed suit against two attorneys who provided legal advice to RVG and Affiliates, including Defendants. Defendants relied on that advice in concluding that RVG was a legitimate business and in committing significant personal resources to grow their now defunct business. Because Defendants’ damages were caused in part by the conduct of the two lawyers, Defendants are entitled in equity and at law to a credit for all money the Receiver recovers from the two attorneys as a result of their claims against them.
H. Plaintiff’s claims are time-barred pursuant to the express terms of the agreement between RVG/ZeekRewards and Defendants.
Filed on the virtual eve of the Burks criminal trial which begins on July 5th, the Receiver has filed a Motion for Summary Judgment in Bell v Disner, et al, along with a supporting memorandum of Law and a group of Exhibits. The Motion lists the “Named Defendants” like this:
The named defendants in this action are among the largest net winners of the ZeekRewards scheme, with winnings for each reaching as high as $1,875,000. The Court already has entered Judgments against several of these named defendants – who either failed to answer or cooperate in the action. See supra at n.1 and Doc. Nos. 76, 93, 95 and 119. Two defendants, Lori Jean Webber and P.A.W.S. Capital Management LLC, have reached a settlement with the Receiver.
The remaining named defendants are: Jerry Napier (Owosso, Michigan; a “net winner” of more than $1,745,000); Durant Brockett (Las Vegas, Nevada; a “net winner” of more than $1,720,000); Darren Miller (Coeur d’Alene, Idaho; a “net winner” of more than $1,635,000); Rhonda Gates (Nashville, Tennessee; a “net winner” of more than $1,425,000); T. Le Mont Silver Sr. (Orlando, Florida / Dominican Republic; a “net winner” of more than $773,000; Mr. Silver also used Global Internet Formula, Inc., which is, upon information and belief, incorporated in Florida, as a shell company through which he was a ZeekRewards “net winner” of more than $943,000); Karen Silver (T. Le Mont Silver’s wife; a “net winner” of more than $600,000); Aaron and Shara Andrews (Lake Worth, Florida; the Andrews used Innovation Marketing LLC, a Florida shell company to win more than $1,000,000) and David and Mary Kettner (Peoria, Arizona; “net winners” of more than $930,000 using the shell companies named Desert Oasis International Marketing, LLC and Kettner & Associates, LLC as nominal payees). See Exhibit C (Expert Report of David S. Turner) (hereinafter “Turner Report”)at Ex. F.
Default judgments have already been ordered against:
Michael Van Leeuwen – $1,617,444.99
Todd Disner – $2,079,757.88
David Sorrells – 1,197,241.12
Trudy Gilmond – $2,129,522.27
Also listed are the “net Winner Class” which was already certified by the Court.
On September 14, 2015, the Court appointed Kevin Edmundson as class counsel and subsequently the Court authorized the defendant class to engage an expert witness,
Berkeley Research Group (“BRG”), at the primary expense of the Receivership. See
Doc. Nos. 117, 125.
Their own expert witness, BRG concluded the following:
In its initial report dated January 18, 2016, BRG agreed that it was able to “replicate the exhibits in the Turner Report, within a reasonable margin of difference.” Then, in its “Phase II” report, BRG reached two conclusions (bolded in the report): a) [B]ased upon a preliminary analysis, it does not appear that the magnitude of profit from the auction business would materially impact the assessment of whether or not the business, taken as a whole, operated as a Ponzi scheme. b) As a result of our testing in Phase II, we have not found evidence that definitively disproves that the business as a whole operated as a Ponzi scheme.
Addressing the Burks and his not so successful endeavors, the receiver had this to say:
Beginning at least as far back as 2000, Paul Burks operated a number of generally
unsuccessful multi-level marketing businesses through Rex Venture Group, LLC (and
related entities) with names such as Go-Go Hub, Free Store Club, My Bid Shack, New
Net Mail and Signed and Numbered International. See, e.g., Bell Aff. at Ex. 2, 3;
Douglas Dep. at pp. 50, 54-55, 71, 78; Exhibit D (Excerpt of Durant Brockett Deposition)
(hereinafter “Brockett Dep.”) at pp.18-19, 30. In 2010, RVG launched Zeekler.com, a
so-called “penny auction” website where items ranging from personal electronics to cash
were auctioned to bidders. See id.
However, bids bought through ZeekRewards rather than as retail bids were more valuable because purchasing those bids gave the affiliates “points” that supposedly entitled Affiliates to a portion of the profits from the business. This was the real (and only) reason Affiliates would pay $1 for auction bids they could buy for $.65. See Brockett Dep. at 77-78. As one Affiliate told Burks, “I know how the system works mathematically and you know I know. Whether you call the bids bids or hamburgers makes no difference. People are not joining Zeek to get hamburgers, orauction bids; they are joining Zeek to make money….” Bell Aff. at Ex. 6.
Also mentioned are the Wright-Olivares and how they knew what they were doing:
From the beginning, RVG intended to use “bids” in ZeekRewards not as a product but as a proxy for money deposited into the program. Dawn Wright-Olivares was very clear about the plan, telling Danny Olivares on January 21, 2011: “We’re just going to use bids as currency.” Bell Aff. at Ex. 9(a). On another occasion, Dawn Wright-Olivares referred to the compounding bids as “Monopoly money.” Bell Aff. at Ex. 9(b). Quickly, RVG’s focus changed from Zeekler to ZeekRewards, which was the source of nearly all the company’s income. Relative to ZeekRewards, little or no money was made in the Zeekler “penny auction” business.
Burks and the other Insiders were aware that the payouts to Affiliates would be funded by new participants rather than retail profits from the penny auctions. Dawn Wright-Olivares excitedly told Burks early in the scheme, “I think we can blow this OUT together- we’ve already attracted a great many big fishes.” Bell Aff. at Ex. 4.
As you go farther down the Memorandum, it details the “Compensation Plan”, the “Compounder” and how the money magically multiplied. And it seems everyone at the top knew all along that it was not exactly above board and could not really explain the voodoo behind the ROI and how it was calculated:
Burks deliberately evaded affiliate questions asking how the RPP was calculated. In a Skype chat with an affiliate, he said: “[a] proprietary system is used to determine the amount of profit sharing that is done each day. We do not divulge the details of how those numbers are determined. Our stated target of minimum of 1% weekdays (Mon-Thur) and .5% weekends (Fri-Sun) has always been met and exceeded. It is clearly not directly tied to the number of auctions in a particular day. It is the overall average that counts.” Bell Aff. at Ex. 9(d).
Behind the scenes, the Insiders were not even subtle about the fake earnings numbers. Often, the company simply used the previous week’s daily RPP percentages. For example, on one occasion, Danny Olivares sent a text message to multiple insiders stating, “Need a % for rpp when you can.” Dawn Wright-Olivares responded, “Do whatever was last Monday.” Bell Aff. at Ex. 40. Or, from Paul Burks: “Hey Dan. Sorry about last night. What percent did you use?” Danny Olivares: “Same as last Friday. 0.009.” Bell Aff. at Ex. 23.
As expected, Kenneth Bell has replied to the recent Motion filed by Todd Disner to set aside the default judgment entered against him, a judgment entered because Disner never bothered to address the lawsuit for a variety of inane reasons. In today’s filing, Mr. Bell had the following to say:
Mr. Disner has failed to meet the threshold showing necessary to succeed on a Rule 60(b) motion, as this Court previously ruled when deciding Mr. Disner’s motion to set aside the entry of default. Furthermore, he has failed to clearly establish any of the grounds necessary to allow the default judgment against him to be vacated. The Receiver does not believe the motion warrants further substantive argument, however, if the Court desires a supplemental analysis or explanation why the motion should be denied, the Receiver respectfully requests the opportunity to supplement this memorandum before the Court renders a decision.
True to form, Todd Disner has filed a Pro Se “Motion to Reopen Judgement in Light of the Courts’ Ruling and Order on His Co-Defendants’ Motion to Dismiss”. Disner issues the following nonsense in the opening paragraph:
On December 9, 2014 the Court issued its decision and order on the co-defendants’ motion to dismiss, establishing the law of the case. In light of the Court’s ruling, the judgment and order of the Court, against the undersigned defendant violates the law of the case as articulated by the Court and must therefore be set aside for the following reasons:
Disner the lists a plethora of further incongruous “reasons”, such as
If the Zeek Rewards business were found to be or was a legitimate business, the amounts the plaintiff has determined as received by the defendant, as a cash basis taxpayer, would have been treated as follows;
The defendant would be entitled to business expense tax deductions, but has directed Zeek Rewards to transfer and give away to third parties in order to promote and grow the defendant’s business…
If the exposure to the trustee (Receiver) does not mirror the exposure to the IRS, the defendant would unjustly enrich the Trustee since the defendant is now exposed to pay back an amount of money that he never had possession and control over…
The Court’s discussion of “constructive trust” on page 14 of its decision is particularly applicable to the basis upon which the Court is obligated to reopen and set aside the Judgment against the defendant.
If the Court’s judgment is allowed to stand while depriving the defendant of the knowledge and ability to have an action taken over against those who were given permission and control over a portion of the judgment the defendant did not receive in case, (paraphrased here) both they and the trustee are unjustly enriched. (Bullshit, I say!!)
The entry of judgment violates both the spirit and the letter of the Court’s decision, (Again with the unjust enrichment)
There are several more idiotic assertions made along these same lines, which you may read on the Files website. If anyone here was unjustly enriched, it was Todd Disner, which is probably why he sat down and made up all of this nonsense.
I seriously doubt the Court will set aside the judgment based on these ludicrous assertions.
Today Senior Judge Graham Mullen issued a 5 page Order in which he granted Default Judgement, denied Disner’s Motion to Set Aside and Motion to Strike. Judge Mullen ordered the Clerk to enter a default judgement pursuant to Federal Rule of Civil Procedure 55(b)(1). The Clerk of Court has entered the Ordered judgment against Disner which will cost him about $2,079,757.88.
In his ORDER, Judge Mullen states the following:
The Court finds that Disner has failed to act with reasonable promptness. He was personally served with the Summons and Complaint three months before he finally filed a substantive document in this lawsuit, which was a request to set aside the default. Moreover, it is clear that he had notice of the action and claims against him and the knowledge to act on his own behalf because he filed a Notice of Appearance to appear pro se nearly a month before the answer was due. Disner states that he “had not received any responsive pleadings from any of his co-Defendants” as an excuse for his failure to file an answer. (Doc. No. 49 at 2). He further suggests in a general fashion that he was seeking to obtain counsel. However, Disner never contacted the Court or the Receiver to request additional time. His assertions fall short of excusing his failure to act with reasonable promptness.
Furthermore, Disner fails to assert a meritorious defense. He does nothing more that state in a conclusory fashion that he “believes that he has a valid defense to the Plaintiff’s complaint . . . .” (Doc. No. 49 at 3, ¶ 8). This vague statement falls well short of asserting a meritorious defense. See Consolidated Masonry, 383 F.2d at 251.
Disner is personally responsible for his failure to plead. He has had previous experience with Ponzi scheme litigation and filed a twenty-nine page pro se Complaint for Declaratory Relief against the federal government in late 2011 claiming wrongful seizure of his Ponzi scheme winnings in another Ponzi scheme.
[The other Ponzi scheme mentioned above was AdSurfDaily (ASD)]
Judge Mullen also was not pleased with Disner’s lack of expedience:
To allow a single, unresponsive Defendant to proceed on a different track than the rest of the Defendants, or to delay the entire proceeding as to all parties due to Mr. Disner’s dilatory filings, would cause additional costs and burdens upon the Receivership Estate, including increased legal fees.
In the case entitled “Bell v Disner, et al” (14-cv-00091) we have this:
REPLY IN SUPPORT OF RECEIVER’S MOTION FOR CLASS CERTIFICATION
The Receiver, through the undersigned counsel, provides the following Reply in support of his Motion for Class Certification. In their response, Defendants all but concede that a class action is the only means to reasonably and efficiently resolve the Receiver’s claims against the more than 9,400 Net Winners at issue, but argue – primarily based on arguments related to the irrelevant individual details of each Net Winners’ participation – that the rules do not allow this beneficial class to be certified. For the reasons set forth below, the Court should reject Defendants’ arguments, grant the Receiver’s Motion and certify a defendant class pursuant to Federal Rule of Civil Procedure 23.
Instead of arguing that the core Ponzi scheme and fraudulent transfer issues are not common to the class, Defendants argue there may be differences in the Net Winners’ “relationships with insiders,” potential counterclaims related to funds in electronic accounts,1 possible reliance on the advice of counsel, potential third party claims or other issues related to the details of each net winner’s participation in the scheme. However, Defendant’s Response cited little to no case law in support of their argument and, as discussed above, even if there were some individual issues that does not mean that the core common class issues do not satisfy the “commonality” requirement.
Defendants further suggest that individual counterclaims might defeat class certification, but the facts and case law do not support their argument. First, as a factual matter, Defendants argue that the named Defendants’ counterclaims might somehow be different from the potential counterclaims of the other class members. However, the counterclaims asserted so far focus on common issues involving NxPay funds and breach of contract issues.3 Second, as a matter of law, the Fourth Circuit has recognized the effect of a counterclaim in and of itself “simply does not create the kind of conflict” that would defeat class certification.
I have uploaded this filing onto the Files website, Doc 82.
Today, Kenneth Bell, through his attorneys, filed a Reply in support of his Consolidated Motion to Dismiss the Defendants’ Counterclaims. In this reply, he states (in part):
The Defendants seek to save their breach of contract claims by arguing the false premise that the Court cannot somehow consider its own prior orders in determining a motion to dismiss. However, their position ignores the well-established case law to the contrary.
Pursuant to the relevant Order, the Defendants are barred from asserting their breach of contract claims.
The Defendants suggest that the Receiver wishes to rely upon the stay of litigation to avoid the adjudication of their counterclaims. This is incorrect. The Receiver is seeking immediate dismissal of the Defendants’ counterclaims as a matter of law.
As explained in the Receiver’s initial memorandum, Defendants’ non-contractual counterclaims are all barred by the Court’s previous Order requiring NxPay to return Receivership funds to the Receiver. Ignoring this Order, Defendants ask the Court to wear blinders and view only the four corners of their pleadings. However, as explained above, the Supreme Court and Fourth Circuit have instructed that relevant matters of public record should be judicially noticed and considered in determining a motion to dismiss.
Defendants have mischaracterized what the Receiver obtained from NxPay pursuant to the Court’s Order. As this Court held, “the Court Orders the RVG funds being held by NxPay® to be turned over to the Receiver.” (Id. at 4). As made clear by the Order and by the Affidavit of Kenneth Mitchell-Phillips of NxPay (SEC Action, Doc. No. 129-1), not all funds frozen in affiliates’ NxPay accounts were RVG funds.
Again in this response as they have repeatedly done elsewhere, Defendants oppose the
Receiver’s requested relief on the grounds that the Receiver was supposedly wrongfully appointed and thus this Court does not have subject matter jurisdiction over the Receiver’s claims. This issue of subject matter jurisdiction has continued to be muddled by the Defendants’ insistent and erroneous focus on the question of whether or not the ZeekRewards scheme involved the sale of “securities,” which is not at all relevant to this action (which seeks the return of fraudulent transfers to the Defendants regardless of whether the scheme involved securities) and not determinative of jurisdiction in the underlying SEC Action.
Defendants do not (and cannot) challenge a federal equity Receiver’s right to bring federal actions or the Court’s jurisdiction to hear claims brought by a duly appointed Receiver within the scope of his appointment. And, there is no dispute that pursuing claims seeking the return of fraudulent transfers from the ZeekRewards Ponzi scheme is at the core of this Receiver’s authorized duties. Rather, the Defendants claim that the Court did not have the authority to appoint the Receiver in the first place because the Court allegedly lacked jurisdiction over the SEC Action.
As if this case could get any more odd, we have this filing (ZeekDoc75) in which defendants:
Trudy Gilmond, Trudy Gilmond, LLC, Jerry Napier, Darren Miller, Durant Brockett, Rhonda Gates, Innovation Marketing LLC, Aaron Andrews, and Shara Andrews (“Defendants”) file this Reply in Support of Defendants’ Motions to Dismiss in response to the Receiver’s Consolidated Response in Opposition to Defendants’ Motion to Dismiss (“Response”)(Doc. No. 67) and in further support of Defendants’ Motions to Dismiss Pursuant to Rules 9, 12(b)(1) and 12(b)(6) (Doc. No. 21) (“Motion”) and Memorandum in Support of Defendants’ Joint Motions to Dismiss Pursuant to Rules 9, 12(b)(1), and 12(b)(6) (Doc. No. 25) (“Brief” or “MTD Brief”).
I got tired just typing that….. but, I digress… One of the more moronic defense points made is this:
the real issue is this: must the Court finally consider whether the SEC Action1 involved a security? The only asserted basis for subject matter jurisdiction in the SEC Action was the SEC’s unsupported claim that the case was based on securities. No security; no jurisdiction. (I wonder if anyone else ever used this self-same argument??)
Since subject matter jurisdiction can be raised at any time and cannot simply be agreed to by the parties, the Court should consider now whether these cases are based on securities. At a July 23, 2013 hearing in the SEC Action, the Court said it would do so. See infra, Section II.B. At the same hearing, both the SEC and the Receiver (contrary to what he now claims) agreed that the issue could be considered now on the merits. See infra, Section II.B. Defendants attach the entire transcript of that hearing as Exhibit A.
I will refrain from going further with snippets from the filing; if you would like to read the Motion and the Hearing Transcript (Exhibit A) as mentioned above, they are both available on the Files website.
On March 3, 2014, I announced the filing of a lawsuit to obtain the return of the money paid out to net winners in the ZeekRewards scheme in excess of the amount they paid into RVG. In that lawsuit, Kenneth D. Bell v. Todd Disner, et al., Civil Action No. 3:14-cv-91, I made claims against more than 10 of ZeekRewards’ largest “net winners” in the United States asking that the Court order them to repay the net winnings they received from the scheme. I also made class action claims against approximately 9,400 ZeekRewards net winners in the United States who each won more than $1,000.
Today, I have filed with the Court a motion asking the Court to certify this Net Winner Class and asked that the Court appoint one or more of the largest net winners sued by name as class representatives because they will, by virtue of their own defense to the same claims, be adequate and appropriate representatives for the rest of the Net Winner Class. Proposed Net Winner Class members are not required to file any response to the motion, but may, of course, discuss this matter with legal counsel if they choose to do so. The deadline for the named defendants to respond to the motion has been set for August 18, 2014.
A copy of the Motion to Certify the Net Winner Class and the Memorandum of Law in Support of the Receiver’s Motion to Certify the Class can be found here: Motion and Memorandum. Also, a list of those individuals whom the Receiver believes won more than $1,000 and therefore would be included in the Net Winner Class can be found here.